Section 206C: Registration statements; transactions requiring commissioner's approval; determination of reasonable surplus; confidentiality of information
Section 206C. (a) Every insurer which is authorized to do business in the commonwealth and which is a member of an insurance holding company system shall register with the commissioner, except a foreign insurer subject to registration requirements and standards adopted by statute or regulation in the jurisdiction of its domicile which are substantially similar to those contained in:
(1) subsection (a) to subsection (1), inclusive, (2) subsection (m), subsection (r), and subsection (t); and (3) either subsection (n) or a provision such as the following: Each registered insurer shall keep current the information required to be disclosed in its registration statement by reporting all material changes or additions within fifteen days after the end of the month in which it learns of each such change or addition, and provided the jurisdiction of its domicile grants a similar exemption to insurers domiciled in the commonwealth. Any insurer which is subject to registration under this section shall register within fifteen days after it becomes subject to registration, and annually thereafter by April thirtieth of each year for the previous calendar year, unless the commissioner for good cause shown extends the time for registration, and then within such extended time. The commissioner may require any insurer authorized to do business in the commonwealth which is a member of a holding company system, and which is not subject to registration under this section, to furnish a copy of the registration statement, the summary specified in subsection (c) or other information filed by such insurance company with the insurance regulatory authority of domiciliary jurisdiction.
(b) Every insurer subject to registration shall file the registration statement on a form prescribed by the commissioner which shall contain the following current information:
(1) the capital structure, general financial condition, ownership and management of the insurer and any person controlling the insurer;
(2) the identity and relationship of every member of the insurance holding company system;
(3) the following agreements in force, and transactions currently outstanding or which have occurred during the last calendar year between such insurer and its affiliates:
(i) loans, other investments, or purchases, sales or exchanges of securities of the affiliates by the insurer or of the insurer by its affiliates;
(ii) purchases, sales or exchange of assets;
(iii) transactions not in the ordinary course of business;
(iv) guarantees or undertakings for the benefit of an affiliate which result in an actual contingent exposure of the insurer's assets to liability, other than insurance contracts entered into in the ordinary course of the insurer's business;
(v) all management agreements, service contracts and all cost-sharing arrangements;
(vi) reinsurance agreements;
(vii) dividends and other distributions to shareholders; and
(viii) consolidated tax allocation agreements;
(4) any pledge of the insurer's stock, including stock of any subsidiary or controlling affiliate, for a loan made to any member of the insurance holding company system;
(5) other matters concerning transactions between registered insurers and any affiliates as may be included from time to time in any registration forms adopted or approved by the commissioner.
(c) All registration statements shall contain a summary outlining all items in the current registration statement representing changes from the prior registration statement.
(d) No information need be disclosed on the registration statement filed pursuant to subsection (b) if such information is not material for the purposes of this section. Unless the commissioner by rule, regulation or order provides otherwise; sales, purchases, exchanges, loans or extensions of credit, investments, or guarantees, any transaction involving one-half of one percent or less of an insurer's admitted assets as of the thirty-first day of December next preceding shall not be deemed material for purposes of this section.
(e) Subject to clause (1) of subsection (r), each domestic insurer shall report to the commissioner all dividends and other distributions to its shareholders within five business days following the declaration thereof and at least ten business days, commencing from the date of receipt by the commissioner, prior to the payment thereof. No domestic insurer shall pay any dividend or make any distribution to its shareholders from other than unassigned funds unless the commissioner shall have approved such dividend or distribution. For purposes of this subsection, the term unassigned funds shall have the same meaning as that term is used in the annual statement required to be filed with the commissioner under the provisions of section twenty-five.
(f) Any person within an insurance holding company system subject to registration shall be required to provide complete and accurate information to an insurer, where such information is reasonably necessary to enable the insurer to comply with the provisions of sections two hundred and six to two hundred and six D, inclusive.
(g) The commissioner shall terminate the registration of any insurer which demonstrates that it no longer is a member of an insurance holding company system.
(h) The commissioner may require or allow two or more affiliated insurers subject to registration hereunder to file a consolidated registration statement.
(i) The commissioner may allow an insurer which is authorized to do business in the commonwealth and which is part of an insurance holding company system to register on behalf of any affiliated insurer which is required to register under subsection (a) and to file all information and material required to be filed under this section.
(j) The provisions of this section shall not apply to any insurer, information or transaction if and to the extent that the commissioner by rule, regulation or order shall exempt the same from the provisions of the this section.
(k) Any person may file with the commissioner a disclaimer of affiliation with any authorized insurer or such a disclaimer may be filed by such insurer or any member of an insurance holding company system. The disclaimer shall fully disclose all material relationships and bases for affiliation between such person and such insurer as well as the basis for disclaiming such affiliation. After a disclaimer has been filed, the insurer shall be relieved of any duty to register or report under this section which may arise out of the insurer's relationship with such person unless and until the commissioner disallows such a disclaimer. The commissioner shall disallow such a disclaimer only after furnishing all parties in interest with notice and opportunity to be heard and after making specific findings of fact to support such disallowance.
(l) The failure to file a registration statement or any summary of the registration statement thereto required by this section within the time specified for such filing shall be a violation of this section.
(m) Transactions within a holding company system to which an insurer subject to registration is a party shall be subject to the following standards:
(1) the terms shall be fair and reasonable;
(2) charges or fees for services performed shall be reasonable;
(3) expenses incurred and payment received shall be allocated to the insurer in conformity with customary insurance accounting practices consistently applied;
(4) the books, accounts and records of each party to all such transactions shall be so maintained as to clearly and accurately disclose the nature and details of the transactions including such accounting information as is necessary to support the reasonableness of the charges or fees to the respective parties; and
(5) the insurer's surplus as regards policyholders following any dividends or distributions to shareholder affiliates shall be reasonable in relation to the insurer's outstanding liabilities and adequate to its financial needs.
(n) The following transactions involving a domestic insurer and any person in its holding company system may not be entered into unless the insurer has notified the commissioner in writing of its intention to enter into such transaction at least thirty days prior thereto, or such shorter period as the commissioner may permit, and the commissioner has not disapproved it within such period.
(1) sales, purchases, exchanges, loans or extensions of credit, guarantees, or investments provided such transactions are equal to or exceed: (a) with respect to non-life insurers, the lesser of three percent of the insurer's admitted assets or twenty-five percent of surplus as regards policyholders; (b) with respect to life insurers, three percent of the insurer's admitted assets: each as of the thirty-first day of December next preceding;
(2) loans or extensions of credit to any person who is not an affiliate, where the insurer makes such loans or extensions of credit with the agreement or understanding that the proceeds of such transactions, in whole or in substantial part, are to be used to make loans or extensions of credit to, to purchase assets of, or to make investments in, any affiliate of the insurer making such loans or extensions of credit provided such transactions are equal to or exceed: (a) with respect to non-life insurers, the lesser of three percent of the insurer's admitted assets or twenty-five percent of surplus as regards policyholders; (b) with respect to life insurers, three percent of the insurer's admitted assets: each as of the thirty-first day of December next preceding;
(3) reinsurance agreements or modifications thereto in which the reinsurance premium or a change in the insurer's liabilities equals or exceeds the lesser of three percent of the insurer's admitted assets or twenty-five percent of surplus as regards policyholders as of the thirty-first day of December next preceding, including those agreements which may require as consideration the transfer of assets from an insurer to a non-affiliate, if an agreement or understanding exists between the insurer and non-affiliate that any portion of such assets will be transferred to one or more affiliates of the insurer;
(4) all management agreements and service contracts, and all cost-sharing arrangements which are not based on generally accepted accounting principles pertaining to cost allocation, and all cost-sharing arrangements the transactions under which would be reportable as transactions with affiliates on the insurer's annual statement. The commissioner may exempt from the requirements of this subsection any management agreement, service contract, or cost-sharing arrangement;
(5) any material transactions, specified by regulation, which the commissioner determines may adversely affect the interests of the insurer's policyholders; or
(6) notifications shall be provided to the commissioner for transactions in clauses (1) to (5), inclusive, which increase or decrease the insurer's surplus as regards policyholders as of the thirty-first day of December next preceding by five percent or more. This notification shall accompany the next quarterly financial statement filing.
Nothing herein contained shall be deemed to authorize or permit any transactions which, in the case of an insurer not a member of the same holding company system, would be otherwise contrary to law.
(o) A domestic insurer may not enter into transactions which are part of a plan or series of like transactions with persons within the holding company system if the purpose of those separate transactions is to avoid the statutory threshold amount and thus avoid the review that would occur otherwise. If the commissioner determines that such separate transactions were entered into over any twelve month period for such purpose, he may exercise his authority under subsection (b) of section two hundred and six D.
(p) The commissioner, in reviewing transactions pursuant to subsections (m) and (n), shall consider whether the transactions comply with the standards set forth in said subsections (m) and (n) and whether they may adversely affect the interests of policyholders.
(q) The commissioner shall be notified within thirty days of any investment of the domestic insurer in any one corporation if the total investment in such corporation by the insurance holding company system exceeds ten percent of such corporation's voting securities.
(r) No domestic insurer shall pay any extraordinary dividend or make any other extraordinary distributions to its shareholders until (1) thirty days after the commissioner has received notice of the declaration thereof and has not within such period disapproved such payment, or (2) the commissioner shall have approved such payment within such thirty day period. For purposes of this section, an extraordinary dividend or distribution includes any dividend or distribution of cash or other property, whose fair market value together with other dividends or distributions made within the preceding twelve months exceeds the greater of (i) ten percent of such insurer's surplus as regards policyholders as of the thirty-first day of December next preceding, or (ii) the net gain from operations of the insurer if the insurer is a life insurance company, or the net income of the insurer if such insurer is not a life insurance company, for the twelve month period ending the thirty-first day of December next preceding, but shall not include pro rata distributions of any class of the insurer's own securities.
Notwithstanding any other provision of the General Laws, an insurer may declare an extraordinary dividend or distribution which is conditional on the commissioner's approval thereof, and such a declaration shall confer no rights upon shareholders until (1) the commissioner has approved the payment of such dividend or distribution or (2) the commissioner has not disapproved such payment within the thirty day period referred to above.
(s)(1) Notwithstanding the control of a domestic insurer by any person, the officers and directors of the insurer shall not thereby be relieved of any obligation or liability to which they would otherwise be subject by law, and the insurer shall be managed so as to assure its separate operating identity consistent with this chapter.
(2) Nothing herein shall preclude a domestic insurer from having or sharing a common management or cooperative or joint use of personnel, property or services with one or more other persons under arrangements meeting the standards of subsection (m) of section two hundred and six D.
(t) For purposes of sections two hundred and six to two hundred and six D, inclusive, in determining whether an insurer's surplus as regards policyholders is reasonable in relation to the insurer's outstanding liabilities and adequate to its financial needs, the following factors, among others, shall be considered:
(1) the size of the insurer as measured by its assets, capital and surplus, reserves, premium writings, insurance in force and other appropriate criteria;
(2) the extent to which the insurer's business is diversified among the several lines of insurance;
(3) the number and size of risks insured in each line of business;
(4) the extent of the geographical dispersion of the insurer's insured risks;
(5) the nature and extent of the insurer's reinsurance program;
(6) the quality, diversification and liquidity of the insurer's investment portfolio;
(7) the recent past and projected future trend in the size of the insurer's investment portfolio and surplus to policyholders;
(8) the surplus as regards policyholders maintained by other comparable insurers;
(9) the adequacy of the insurer's reserves;
(10) the quality and liquidity of investments in affiliates. The commissioner may treat any such investment as a disallowed asset for purposes of determining the adequacy of surplus as regards policyholders whenever in the judgment such investment so warrants; and
(11) the quality of the company's earnings and the extent to which the reported earnings include extraordinary items.
(u)(1) Subject to the limitation contained in this section and in addition to the powers which the commissioner has under section four relating to the examination of insurers, the commissioner shall also have the power to order any insurer registered under section two hundred and six C to produce such records, books, or other information papers in the possession of the insurer or its affiliates as are reasonably necessary to ascertain the financial condition of such insurer or to determine compliance with this chapter. In the event such insurer fails to comply with such order, the commissioner shall have the power to examine such affiliates to obtain such information.
(2) The commissioner may retain at the registered insurer's expense such attorneys, actuaries, accountants and other experts not otherwise a part of the commissioner's staff as shall be reasonably necessary to assist in the conduct of the examination under paragraph (1) of subsection (u). Any persons so retained shall be under the direction and control of the commissioner and shall act in a purely advisory capacity.
(3) Each registered insurer producing for examination records, books and papers pursuant to said paragraph (1) of said subsection (u) shall be liable for and shall pay the expense of such examination in accordance with section four.
(v)(1) Documents, materials or other information in the possession or control of the division of insurance that are obtained by or disclosed to the commissioner or any other person in the course of an examination or investigation made pursuant to subsection (u) and all information reported pursuant to this section shall be confidential by law and privileged, shall not be a public record under clause Twenty-sixth of section 7 of chapter 4, shall not be subject to subpoena and shall not be subject to discovery or admissible in evidence in any private civil action. However, the commissioner may use the documents, materials or other information in the furtherance of any regulatory or legal action brought as a part of the commissioner's official duties.
The commissioner shall not otherwise make the documents, materials or other information public without the prior written consent of the insurer to which it pertains unless the commissioner, after giving the insurer and its affiliates who would be affected thereby notice and opportunity to be heard, determines that the interest of policyholders, shareholders or the public shall be served by the publication thereof, in which event the commissioner may publish all or any part in such manner as may be considered appropriate.
(2) Neither the commissioner nor any person who received documents, materials or other information while acting under the authority of the commissioner or with whom such documents, materials or other information are shared pursuant to this section shall be permitted or required to testify in any private civil action concerning any confidential documents, materials or information subject to paragraph (1) of subsection (v).
(3) In order to assist in the performance of the commissioner's duties, the commissioner:
(i) may share documents, materials or other information, including the confidential and privileged documents, materials or information subject to paragraph (1) of subsection (v) with other state, federal and international regulatory agencies, the National Association of Insurance Commissioners and its affiliates and subsidiaries and state, federal and international law enforcement authorities provided that the recipient agrees in writing to maintain the confidentiality and privileged status of the document, material or other information and has verified in writing the legal authority to maintain confidentiality;
(ii) may receive documents, materials or information, including otherwise confidential and privileged documents, materials or information from the National Association of Insurance Commissioners and its affiliates and subsidiaries and from regulatory and law enforcement officials of other foreign or domestic jurisdictions and shall maintain as confidential and privileged any document, material or information received with notice or the understanding that it is confidential or privileged under the laws of the jurisdiction that is the source of the document, material or information; and
(iii) shall enter into written agreements with the National Association of Insurance Commissioners governing sharing and the use of information provided pursuant to this subsection that shall:
(a) specify procedures and protocols regarding the confidentiality and security of information shared with the National Association of Insurance Commissioners and its affiliates and subsidiaries pursuant to this section, including procedures and protocols for sharing by the National Association of Insurance Commissioners with other state, federal or international regulators;
(b) specify that ownership of information shared with the National Association of Insurance Commissioners and its affiliates and subsidiaries pursuant to this section remains with the commissioner and the National Association of Insurance Commissioners' use of the information is subject to the direction of the commissioner;
(c) require prompt notice to be given to an insurer whose confidential information in the possession of the National Association of Insurance Commissioners pursuant to this section is subject to a request or subpoena to the National Association of Insurance Commissioners for disclosure or production; and
(d) require the National Association of Insurance Commissioners and its affiliates and subsidiaries to consent to intervention by an insurer in any judicial or administrative action in which the National Association of Insurance Commissioners and its affiliates and subsidiaries may be required to disclose confidential information about the insurer shared with the National Association of Insurance Commissioners and its affiliates and subsidiaries pursuant to this section.
(4) The sharing of information by the commissioner pursuant to this section shall not constitute a delegation of regulatory authority or rulemaking and the commissioner is solely responsible for the administration, execution and enforcement of this section.
(5) No waiver of any applicable privilege or claim of confidentiality in the documents, materials or information shall occur as a result of disclosure to the commissioner under this section or as a result of sharing as authorized in paragraph (3).
(6) Documents, materials or other information in the possession or control of the National Association of Insurance Commissioners pursuant to this section shall be confidential by law and privileged, shall not be a public record under clause Twenty-sixth of section 7 of chapter 4, shall not be subject to subpoena and shall not be subject to discovery or admissible in evidence in any private civil action.
(w) The commissioner may, pursuant to chapter thirty A, upon notice and opportunity for all interested parties to be heard, issue such rules, regulations and orders as shall be necessary to carry out the provisions of sections two hundred and six to two hundred and six D, inclusive.
(x)(1) For purposes of this subsection, the term ''supervisory college'' shall mean a meeting of insurance regulators or supervisors to discuss regulatory oversight of 1 specific insurance group that is writing significant amounts of insurance in several jurisdictions to facilitate both the supervision of the group as a whole, on a group-wide basis, and to improve the legal entity supervision of the entities within the insurance group.
(2) With respect to any insurer registered under this section and in accordance with paragraph (4), the commissioner may participate in a supervisory college for any domestic insurer that is part of an insurance holding company system with international operations in order to determine compliance with this section by the insurer. The powers of the commissioner with respect to supervisory colleges shall include, but shall not be limited to:
(i) initiating the establishment of a supervisory college;
(ii) clarifying the membership and participation of other supervisors in the supervisory college;
(iii) clarifying the functions of the supervisory college and the role of other regulators, including the establishment of a group-wide supervisor;
(iv) coordinating the ongoing activities of the supervisory college, including planning meetings, supervisory activities and processes for information sharing; and
(v) establishing a crisis management plan.
(3) Each registered insurer subject to this subsection shall be liable for and shall pay the reasonable expenses of the commissioner's participation in a supervisory college in accordance with paragraph (4), including reasonable travel expenses. For purposes of this section, a supervisory college may be convened as either a temporary or permanent forum for communication and cooperation between the regulators charged with the supervision of the insurer or its affiliates and the commissioner may establish a regular assessment to the insurer for the payment of these expenses.
(4) In order to assess the business strategy, financial position, legal and regulatory position, risk exposure, risk management and governance processes, and as part of the examination of individual insurers in accordance with subsection (u), the commissioner may participate in a supervisory college with other regulators charged with supervision of the insurer or its affiliates, including other state, federal and international regulatory agencies. The commissioner may enter into agreements providing the basis for cooperation between the commissioner and the other regulatory agencies and the activities of the supervisory college. Nothing in this subsection shall delegate to the supervisory college the authority of the commissioner to regulate or supervise the insurer or its affiliates within its jurisdiction.